RegulationSep 11 2015

Tyrie warns of competition impact from bank levy

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Tyrie warns of competition impact from bank levy

The Treasury select committee’s chairman has urged the government to recognise the potential unintended consequences for sector competition that could come from a proposed bank corporation tax surcharge.

Ahead of the meeting between challenger banks and the Treasury about the tax today (11 September), Andrew Tyrie commented that: “It is crucial that this surcharge does not act as an impediment to the government’s efforts to increase competition in the sector.”

Last month, several institutions complained measures outlined in the Summer Budget would impact their ability to lend.

Chancellor George Osborne revealed in July that the annual levy UK banks must pay – based on the total assets on their balance sheets – would be gradually reduced in the next six years, falling to around 0.1 per cent from its 0.21 per cent level.

While this double taxation was a headache for established banks, the biggest losers could be the so-called ‘challenger banks’, such as Metro Bank and Virgin Money, experts said.

Aldermore Group’s chief executive Phillip Monks, said that the introduction of an 8 per cent surcharge on UK banking profits above £25m, effective from 1 January 2016, “will increase our corporate tax rate and impact returns”.

Chris Pilling, chief executive of the Yorkshire Building Society Group, warned that as the six largest societies were responsible for 50 per cent of net mortgage lending in 2014, a tax which could impact our ability to fund growth in lending could have significant consequences for the UK mortgage market.

“As well as funding lending, we also use retained profit to invest in the business and to provide savers with overall returns that beat the market average,” he commented.

Mr Tyrie stated that the Competition and Markets Authority will want to take the changes into account in their retail banking market investigation, adding that his committee will be discussing this with them when they complete their work.

“The surcharge has also been criticised on the grounds that it fails to reflect the unique risks created by the banks and building societies. Building societies, in particular, have argued that they are less risky than big banks and that the new tax disproportionately affects them.

Mr Tyrie noted that this may not be the case. “As Andrew Bailey confirmed to the Treasury Committee in March 2015, these institutions do not necessarily carry less risk than banks. Both banks and building societies create prudential risk,” he added.

peter.walker@ft.com